The 2 Best Canadian Stocks to Beat the TSX Index in 2021

Alimentation Couche-Tard Inc. (TSX:ATD.B) and another Canadian consumer staple have been unfairly ditched amid the latest rally.

| More on:

The TSX Index has been a massive underperformer over the last decade. While past performance is no guarantee of future returns, let’s just say that betting on the S&P 500 outperforming over the next decade is probably a wiser move.

In many prior pieces, I’ve slammed the TSX Index for being a poor investment on its own. Passive investors who hold onto the index are not only not getting proper sector diversification (an essential nutrient for any Canadian’s TFSA!), but they were also overweighting themselves in the energy and financial sectors, the former of which appears to be on the wrong side of a secular trend.

Overweighting your portfolio to fossil fuel industries probably isn’t the best strategy if you wish to achieve market-beating results. Fortunately, self-guided Canadian stock pickers can crush the TSX Index and achieve sufficient diversification by selecting the top plays and steering clear of those under pressure, with worsening macro backdrops.

In this piece, I’d like to bring your attention to two proven market beaters that I think are attractively valued at this juncture. Without further ado, consider shares of Alimentation Couche-Tard (TSX:ATD.B) and Metro (TSX:MRU), two consumer staples that have taken big hits to the chins in recent weeks.

Couche and Metro are down 18% and 15% at the time of writing, respectively, from their all-time highs, thanks in part to the drastic shift in risk appetite and a vaccine-driven rotation out consumer staples and into the more cyclical areas of the market. While both firms may not be as sought after now that the pandemic’s end is likely in late 2021, I still think both plays are a wonderful value for those willing to think longer term.

Couche-Tard: A growth king that could crush the TSX Index

Couche-Tard is a convenience store kingpin that plunged on the shocking announcement that it was looking to scoop up French grocer Carrefour, a deal that’s since fallen through. The shocking pivot in acquisition strategy left Couche-Tard stock with an even greater discount on its shares.

While I’m not a fan of management’s timing or its decision to surprise shareholders, I think a pivot into the grocery space makes a tonne of sense. Such a move would have given Couche-Tard’s convenience stores a huge jolt, with better availability and access to fresh food items, among other products that would have better solidified the company’s future position in convenience retail.

Investors and analysts don’t get the deal. But if you’re like me and are looking forward to a potential blockbuster in the grocery arena, I’d look to buy the stock now, while it’s close to the cheapest it’s been in recent memory. Couche is a long-term play that I think is worthy of a correction to the upside, possibly to $62.

Metro: A top grocer that’s been hit too hard

Metro is a Canadian grocer that I view as the gold standard. The firm is incredibly efficient in operating in an industry that’s typically commanded low margins. With a negative beta (currently at -0.15), shares of Metro are more likely to zig when the TSX Index zags. The low to negative degree of correlation to the broader markets improves the chances that MRU stock will be a lone green arrow in the next market-wide sea of red.

With many folks thinking we’re overdue for a correction, Metro stock looks like a great hiding place. Of course, a low or negative beta doesn’t mean the stock is guaranteed to soar when the markets tank or vice-versa. But if you lack a good core and want to further improve upon your portfolio’s risk/reward balance, the out-of-favour grocer, I believe, is a must-buy on the recent dip.

Shares are being punished for all the wrong reasons. The firm did a remarkable job through 2020, and I think a re-valuation to the upside could be in the cards once volatility picks up again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.

More on Stocks for Beginners

A glass jar resting on its side with Canadian banknotes and change inside.
Stocks for Beginners

How to Grow Your TFSA Well Past the Average

Need to catch up quick with your TFSA? Consider some regular contributions to this top bank stock, as well as…

Read more »

An investor uses a tablet
Stocks for Beginners

Prediction: Here Are the Most Promising Canadian Stocks for 2025

Here are three top Canadian stocks that could deliver solid returns on your investments in 2025.

Read more »

Top TSX Stocks

A 6 Percent Dividend Yield Today! But Here’s Why I’m Buying This TSX Stock for the Long Term

Want a great stock to buy? You will regret not buying this TSX stock and its decades of growth and…

Read more »

grow money, wealth build
Dividend Stocks

TELUS Stock Has a Nice Yield, But This Dividend Stock Looks Safer

TELUS stock certainly has a shiny dividend, but the dividend stock simply doesn't look as stable as this other high-yielding…

Read more »

sale discount best price
Stocks for Beginners

Have $2,000? These 2 Stocks Could Be Bargain Buys for 2025 and Beyond

Fairfax Financial Holdings (TSX:FFH) and another bargain buy are fit for new Canadian investors.

Read more »

Rocket lift off through the clouds
Stocks for Beginners

2 Canadian Growth Stocks Set to Skyrocket in the Next 12 Months

Despite delivering disappointing performance in 2024, these two cheap Canadian growth stocks could offer massive upside in 2025.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Magnificent Canadian Stock Down 12% to Buy and Hold Forever

This top stock may be down 12% right now, but don't see that as a problem. See it as a…

Read more »

woman looks at iPhone
Dividend Stocks

Retirees: Is TELUS Stock a Risky Buy?

TELUS stock has long been a strong dividend provider, but what should investors consider now after recent earnings?

Read more »